The IMF Lowers Its Growth Forecast for Colombia to 2.3% in 2017

The International Monetary Fund (IMF) is predicting 2.3% GDP growth for Colombia in 2017, a decrease from the 2.7% expansion the institution had forecasted in October. The drop is even more significant compared to the 3.0% 2017 growth rate predicted in July by the IMF.

This still, however, represents a recovery for the Colombian economy, which grew just 2.0% in 2016  — the lowest figure since 2009. The IMF said that the improvement will largely be driven by the higher commodity prices it expects in 2017 compared to last year.

The IMF’s forecast for Colombian growth in 2018 remains unchanged at 3.0%.

Photo: Analysts in the IMF headquarters in Washington, D.C., seen here, have reduced their 2017 GDP growth rate for Colombia from 2.7% to 2.3%. (Credit: AgnosticPreachersKid)

Bad News for Latin America

The decreased optimism for Colombia is in line with the IMF’s updated outlook for the region. It is now predicting significantly lower regional growth for Latin America’s GDP in 2017 than it had forecasted last fall.

Its current expectation is for 1.1% growth in Latin America this year, a full 0.5 percentage points below its estimate last October and a 0.1 drop from its January revision.

The IMF’s 2018 projection also fell again. The group’s October forecast of 2.2% fell to 2.1% in January and has been reduced again — to just 2.0% growth for the region in 2018.

“A weaker-than-previously-expected recovery is projected to take hold in Latin America and the Caribbean,” stated the organization in its report.

Brazil, Mexico, and Argentina on Different Paths

While its view of the region as a whole has become gloomier, the IMF did note that different locations will have very different types of recoveries. “Within the region, the growth outlook differs substantially across countries,” said the report.

The story of each nation largely depends on its ties to different commodities as well as the individual fiscal situation, according to the IMF. “While activity in most commodity exporters is expected to be supported by the recovery in commodity prices, domestic fundamentals continue to play a key role in the outlook of some large countries,” said the IMF.

Mexico is one country that now looks worse off. The IMF’s forecast for Mexico has been downgraded to 1.7% in 2017 and 2.0 percent in 2018, mainly due to the so-called Trump effect that has dragged on the nation’s currency since his election and thrown the North American Free Trade Agreement into question.

“[The] downgrade over the two years reflects subdued prospects for investment and consumption in the face of tighter financial conditions and increased uncertainty about future U.S./Mexico trade relations,” wrote the IMF. “These factors more than offset the positive impact of a stronger U.S. outlook and the depreciation of the currency.”

Brazil’s recovery has also been dampened. While the IMF still predicts the country to emerge from its severe recession in 2017, the institution is now forecasting a growth rate of just 0.2% this year. This is 0.3 percentage points below the rate expected last October.  The IMF did improve Brazil’s 2018 outlook, however, increasing its October figure of 1.5% to 1.7%. “The gradual recovery will be supported by reduced political uncertainty, easing monetary policy, and further progress on the reform agenda.”

Argentina is expected to be the biggest improver, among large economies, in the region with 2.2% growth in 2017 after a contraction of -2.3% last year. This comes on the strength of a “gradual rebound of private investment and exports,” stated the IMF.

By contrast, the prospects of Colombia’s in-crisis neighbor to the west continue to plummet. “Venezuela remains mired in a deep economic crisis, with output forecast to contract by 7.4% in 2017 and 4.1% in 2018, as monetization of fiscal deficits, extensive economic distortions, and severe restrictions on intermediate goods imports fuel rapidly rising inflation.”